Taiwan Plays Role of Country in the Middle

The 'other' China, Taiwan, is another casualty of the failure of the U.S. and China to reach WTO accord.
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One victim of the failure of the U.S. and China to agree on China's accession to the

World Trade Organization

is the "other" China, Taiwan.

This year, Taiwan has been wrapping up negotiations quietly and without fanfare to enter the WTO. It concluded an agreement with the U.S. in 1998, and has concluded separate agreements with other countries since then. These have been relatively easy negotiations because of the considerable progress Taiwan has made in liberalizing its economy over the past decade. Since martial law was lifted in 1987, Taiwan has steadily lowered tariffs, reduced nontariff barriers, opened its country to foreign investment, lifted capital controls and even begun liberalizing its financial sector.

In stark contrast to China, Taiwan is now a relatively open-market economy, with a thriving democracy, strong rule of law and considerable transparency, all the crucial elements of a well-functioning modern economy. The result has been a flood of foreign direct investment and steady growth throughout the '90s in the 4%-to-6% range annually. Taiwan weathered the Asian financial crisis of two years ago extremely well. Its growth this year is estimated to be around 5%, even taking into account the costs of the September earthquake. It is well positioned to become a significant economic powerhouse in the region over the next decade.

The next step in Taiwan's development should be joining the WTO. Taiwan is ready to do so, and by all rights, it should be able to do so at the November

Ministerial in Seattle

, at which a host of new countries will enter. However, Taiwan is held hostage by the talks on China's accession, a result of the unspoken agreement between the WTO and China that the two would join simultaneously. Although China claims Taiwan is a renegade province, not a country, it has agreed to Taiwan's accession as a "nonsovereign customs territory." Officially, the U.S. and the WTO say that the two negotiations should be separate, and both Chinese and Taiwanese applications to enter should be approved solely on their respective merits. Unofficially, however, China insists that it enter first. This is a country, remember, for which appearance is extremely important. It is a country that officially protested to Sweden because of a

rumor

that a Chinese dissident might be awarded the

Nobel Peace Prize

this year.

Meanwhile, the talks on China's accession are in limbo. This week, Chinese President

Jiang Zemin

completed his visit to Europe, where the issue was discussed only in broad terms.

Treasury

Secretary

Lawrence Summers

returned from China this week after a meeting of the

Joint Economic Committee

, but no progress was made. The assumption is the Chinese government is trying to figure out if it really wants an agreement now before it gets serious about negotiating. And so Taiwan waits.

What would Taiwan's accession to the WTO mean? It would open up huge sectors of Taiwan's economy to foreign companies, presenting considerable opportunities. Much of the increased imports into Taiwan would be agricultural. Taiwan has an inefficient agricultural sector, and with lower tariffs, food products from around the world would begin to flood in. Of greater interest to investors would be the increased imports in the high-tech sector, especially semiconductor chips and telecommunications equipment. Financial-services firms could do more business, lending to Taiwanese who invest in China, ironically. (Taiwan is the largest source of Chinese foreign direct investment.)

In a broader sense, letting Taiwan into the WTO would lock in Taiwan's liberalization. Reportedly, Taiwan has told its trading partners that it would withdraw some of its offers to reduce trade barriers if it doesn't get into the WTO this year.

Perhaps the greatest significance of Taiwan's entry would be political, by marking another step toward Taiwan's independence. Taiwan is a member of a number of international organizations, such as the

Asia-Pacific Economic Cooperation

forum, but this would be the most significant by far. In the WTO, Taiwan would gain international recognition as an independent country, er, customs territory.

Greg Mastel, a Taiwan expert at the

New America Foundation

, believes there may be a movement to let Taiwan in ahead of China. The

Clinton

administration, committed to a "one China" policy, would certainly resist such a move. However, it would make sense economically and for the WTO. It might even cause China to rush back to the negotiating table.

David Kurapka wrote speeches for Treasury Secretary Robert Rubin from 1996 until 1999. Before that, he was U.S. Trade Representative Mickey Kantor's speechwriter from 1993 to 1996. Kurapka writes from Oakland, Calif.